Rdio’s would-be Netflix killer, the streaming video service Vdio, calls it quits

Rdio is killing its streaming video service Vdio, abandoning plans to combine the two in a joint subscription media offering and raising the question whether any newcomer at this point can compete with Netflix (S NFLX), Hulu and Amazon (S AMZN) Prime Instant.

Rdio announced the decision on its website Friday, writing:

“Despite our efforts, we were not able to deliver the differentiated customer experience we had hoped for. We want to thank all customers who have tried our service, and we have given gift cards to all those who have purchased content or have unused rental content.”

The announcement marks the unexpected shuttering of a premium video offering backed by Skype co-founder Janus Friis that at one point intended to heads-on compete with Netflix.

Vdio’s stealthy and rocky beginnings

Vdio was founded in December of 2009 under the stealth startup name Project WBS, and remained in stealth mode until late 2011, when Gigaom broke the story about Vdio’s existence. The company was founded and financed by KaZaA and Skype founder Janus Friis, and run by a team out of Los Angeles that included a number of former Skype employees as well as people who had worked for Joost, Friis’ ill-fated first foray into the world of online video.

The company still played its cards close to its chest, even after we uncovered is existence and its general plans. In early 2012, I stumbled across some clues that Vdio was planning to launch a Netflix-style subscription offering that would include VOD credits for shows or movies not part of the subscription — something that’s similar to what Redbox Instant has been offering.

However, Vdio missed its announced launch date, and a few months later, it became clear why: Most of Vdio’s staff had been let go in April of 2012 when the company decided to scrap all of its development and start over with technology based on Rdio’s music subscription offering.

Big plans, but a small launch

Vdio finally opened up to Rdio subscribers in early 2013, but at that time, the offering was anything but a Netflix killer. Vdio was just another online video store, offering rentals and sales of moves and TV shows. The site featured a beautiful design very similar to Rdio’s product, but the content offered was also available on iTunes (S AAPL), Amazon, Vudu and half a dozen other platforms.

But it wasn’t just the content that was lacking. Vdio started out with an iOS app, but it never made the jump onto Roku or any other connected device. And it never received any kind of promotion worth mentioning. Even Rdio users, which would have been the obvious first choice for an effective cross-promotion, didn’t hear much about Vdio after its launch, and the Vdio Twitter (S TWTR) account features a total of six lonely tweets.

Rdio executives on the other hand kept insisting that the company had big plans for Vdio. Former Rdio CEO Drew Larner in particular championed a combined music and video subscription service, and he told me even in September that this plan was backed by Rdio’s Janus Friis. Said Larner:

“Janus’ vision is to have a global entertainment streaming platform.”

It may just be too late to catch up with Netflix

Some time in the last few months, that worldview must have changed. Significant layoffs at Rdio in November were a first sign that the streaming startup was forced to keep a closer eye on its bottom line. That new prudence also was shining through when Rdio issued its remarkably honest statement regarding Vdio’s closure. In a short FAQ, Rdio put it this way:

“We have concluded that we are not able to deliver a differentiated customer value proposition or a business model which is attractive to shareholders.”

Bold visionary endeavours like a global entertainment platform are very expensive, even for a billionaire like Friis — and in the end, he may have decided that it simply wasn’t worth it.

But there is something else to this: Back in 2009, when Vdio was founded, competing with Netflix still seemed like a real possibility. Back then, Netflix was still building out its streaming offering as an offshoot to its bigger and more established DVD business, and most of the rights to streaming content were non-exclusive. Even in 2011, Netflix still seemed vulnerable, especially after the company struggled with the Qwikster fiasco.

But fast forward two years, and you find yourself in a very different world. Netflix now has more than 40 million subscribers worldwide. It’s spending billions on content, increasingly locking it down with exclusive agreements. Intense competition with Amazon and others has driven up content costs, and Netflix and others are throwing down serious cash for original productions.

The window for Vdio to compete heads-on with Netflix may simply have closed by now, and its admit of defeat puts a spotlight on Redbox Instant and other small competitors that are still trying to find their place next to the streaming giant.